Biopharma CMO Market’s Recent Downturn Could be Short-Lived

Biopharmaceutical CMOs have seen their business slowly shrink as companies seek less volume and smaller batches, but outsourcing is expected to increase over the next three years.

The market for biopharma CMOs seems to have peaked in 2008. The number of development projects on protein, monoclonal antibodies and other biologics and APIs made recombinantly fell by 26% between 2007 and 2011, William Downey, president of HighTech Business Decisions, said in a session on the biopharma CMO market at Informex in Anaheim, Calif.

“A number of preclinical and Phase I trials were shelved during the economic downturn,” and fewer biopharma CMOs are entering the market as some have even outsourced their production facilities to larger companies looking to do their own manufacturing, Downey said. He noted that Lonza has had to recently cut some of its prices as smaller CMOs have won more business.

HighTech conducted two reports on biopharma CMOs, which are mainly separated by the ones who produce APIs, such as Lonza, and those that fill and finish and don’t have any fermentation or cell culture capabilities. The main challenges for fill-and-finish CMOs are driven by price competition, while for API CMOs it’s production liability.

The reports found a decline in CMO business at the same time as biologic sales grew at an increasingly faster rate over the last five years and regulatory approvals grew consistently in the late 2000s but tapered off over the past few years.

“There aren’t as many biotech companies as CMOs might think there are,” Downey said, noting that there isn’t currently a verified tally, but it’s less than the 3,000 companies that some CMOs might assume there to be.

In a survey of what biopharma companies are looking for in a CMO, Downey found they’re primarily seeking:

Additional analytical services;

Conjugation services;

High yield expression systems; and

Increased formulation.

These requests come as yields in microbial productivity in Phase 3 material are down for CMOs, but up for biopharma companies producing their own products, which Downey said is “great for consumers but bad for CMOs, especially the ones that sell on a per-batch basis.”

However, he said the biopharma CMO industry has a number of optimistic and positive trends, with outsourcing budgets expected to increase to almost 70% of some companies’ manufacturing budgets by 2016. Biotech companies with more than one biomanufacturing site, however, are only expected to devote 31% of their manufacturing budgets to outsourcing by 2016.

Outsourcing in Low-Cost Regions

But even though outsourcing budgets are expected to increase in the near future, it seems biopharma companies are not going to stick with familiar companies as opposed to those in low-cost regions.

In terms of outsourcing to low-cost regions, such as China, India and eastern Europe, 54% of biopharma managers said they would not consider it, while 29% said they would, and 15% said they would only if it was necessary for entering a new market, according to a recent survey conducted by HighTech.

And whereas 10 years ago many of the companies that refused to go to low-cost regions cited IP protections as their biggest issues, now companies say that cost and time difference is what is driving them away.

Other challenges to outsourcing to low-cost regions, listed in descending order of importance include:

Communication and language barriers;

Regional experience;

Quality;

Experience and technical ability;

Cultural differences; and

Manpower to deal with oversight.

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